BigTechs concerns privacy, concentration risk and other

BigTech firms are large technology companies with extensive established customer networks. Some BigTech firms use their platforms to facilitate provision of financial services.

The below as been quoted from Steven Maijoor (Chair of the European Securities and Markets Authority (ESMA)) speech:

BigTechs have the potential to win market share in financial services because they enjoy
competitive advantages such as economies of scale, vast customer networks, access to cheap funding and proprietary data that powers personalised services.

BigTech firms may use data to offer tailored services. This is a familiar idea from other lines of business. For instance, you may receive online advertising for a holiday destination based on your searches for local hotels, your social media posts or recent holiday-related online purchases.

A risk, however, is that even if competition in certain financial services increases at first, it may later suffer as BigTechs grow market share. Switching provider may be less convenient if financial services are integrated with other lines of business. In other words, BigTechs may, after successful entry and growth, achieve a ‘gatekeeping’ position. And they may use personal data to extract more surplus from consumers through segmented pricing.

Privacy and data rights are a major concern, especially in light of the apparently illicit use of personal data by some firms in recent years. A single firm may be able to learn and infer a huge amount about people’s lives and personal circumstances. Integrating financial services into online platforms increases even further the sensitivity of such information.

Although financial inclusion may be a benefit in some cases, there is a risk of exclusion in others. For example, reduced information asymmetry between provider and client for products such as insurance or credit may reduce prices for some consumers, but exclude others altogether. And people less inclined to use digital technology may lose out. Finally, a business model operating across economic sectors may raise concentration risk. An operational incident that originates in one platform service offered by a BigTech firm could have a large impact on other lines of business, including financial services.

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